“The decision to upgrade the ratings is underpinned by Moody’s expectation that continued progress on economic and institutional reforms will, over time, enhance India’s high growth potential,” Moody’s said.

Modi abruptly banned 86% of the country’s cash in November last year, with the aim of combating tax evasion and promoting digital payments. The ban delivered a sharp shock to India’s cash-dependent economy that many businesses haven’t recovered from.

Then, in July, the government replaced dozens of state tariffs with a single national sales tax. While largely seen as a positive move, the change further disrupted economic activity as businesses struggled to adapt.

Moody’s acknowledged that the cash ban and tax reform “have undermined growth over the near term.”

But the policy changes would ultimately foster “strong and sustainable growth” by making it easier to do business, boosting productivity and stimulating investment, the ratings agency added.